Corporate Transparency And Expropriation By Large Shareholder

Information disclosure is essential to ensure the efficiency and function of capital market. The operation of information disclosure mechanism depends on the quality of information disclosure, namely, transparency. In China, many cases about large shareholder's expropriation of listed company's funds are related to information opacity. Hence, what is the effect of information transparency of listed companies on expropriation by large shareholder is needed to be extended.According to recent studies, concentrated corporate ownership is predominant in most countries except the USA and Britain. And because of the existence of private benefit of controlling right, under the traditional situation of"divergence of controlling right and ownership", concentrated corporate ownership changes information asymmetry and agency problem between shareholders and managers into benefits conflict between large shareholder and minority shareholders. A new agency problem has raised, that is, large shareholder takes good use of his controlling position and information advantage to expropriate minority shareholders dramatically.Like other emergency markets, listed companies in China also have concentrated corporate ownership, in the environment that the controlling right can not be constricted, large shareholder could manipulate financial and accounting information system, the quality of information is controlled by large shareholder. Large shareholder has incentive to make financial and accounting information corresponding with his interest and seek private benefit of control right.In China, large shareholder expropriating fund is an important way to tunneling. Because of the generality and seriousness of expropriation, several Chinese scholars have studied the problem about large shareholder's expropriation of listed company's funds. Previous literature about determinant factor of the expropriation by large shareholder argued the influence of a series corporate governance mechanism, such as ownership structure, independent director percentage and audit opinion, on the expropriation by large shareholder. We consider information transparency as an important part of corporate governance mechanism; information transparency makes great contribution on decreasing information asymmetry and agency conflict between large shareholder and minority shareholders. Bad information transparency can weaken the monitor of the control right in listed companies and make it convenient for large shareholder's tunneling. Worse information transparency, more funds expropriating by large shareholder.In our paper, we discuss the relationship between information transparency and the expropriation by large shareholder. Measuring information transparency as earnings opacity, and using A share listed company between year 2002 and 2004 as sample, we find that earnings opacity is still a significant factor influencing large shareholder's expropriation when the else determinant factors are controlled. We find that large shareholder's expropriation has a significant relationship with Earnings bias(modified Earnings Aggressiveness), Earnings Smoothing(modified Earnings Smoothing) and total degree of earnings opacity, we can conclude that worse information transparency, more funds expropriating by large shareholders. The results mean that the decreasing of information transparency makes information asymmetry between large shareholder and minority shareholders worse, and provide convenience to large shareholder's tunneling. Meanwhile, when we make further analysis, share constriction degree, whether chairman of board working in large shareholder and controlling method can affect large shareholder's expropriating action. In the robust test, when using qualification of information disclosure and the information disclosure examining results in"credibility file"on net of Shenzhen security exchange as the substitute measure of information transparency respectively , we conclude that information transparency still influence large shareholder's expropriation significantly, our hypothesis is supported.We suggest that listed companies should increase their information transparency, relevant departments should strengthen the monitor power of information disclosure quality and force listed companies make public disclosure of important information timely, accurately and comprehensively, protect the interests of minority investors; optimize share structure, and make all stocks tradable;advance senior managers employment rule and source, release the large shareholders'control over senior managers in listed companies; improve the independency of independent directors, enforce the monitor of independent directors; perfect the relevant laws and regulations actively and strengthen the penalty power of expropriating actions by large shareholder, prevent large shareholder from transferring corporate assets and tunneling.The main contribution of our paper is that, we regard information transparency as an important part of corporate governance mechanism; and have modified the methods of measuring earnings opacity, measure information transparency by modified earnings opacity, qualification of information disclosure and information disclosure examining results in"credibility file"on net of Shenzhen security exchange; based on previous studies about determinant factors of large shareholder's expropriation, controlling other factors which have influence on large shareholder's expropriation, we make a deep analysis of how information transparency influences expropriating action by large shareholder. Our paper provide a new proof to the problem about large shareholder's expropriation of listed Company's Funds; we also support the perfection of the relevant legal system and regulation which will enforce the monitor power of information disclosure quality , penalty power of the expropriating action by large shareholder and protect minority investors'interests.